RESEARCH SOLUTIONS, INC. Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the years endedJune 30, 2021 and 2020 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under "Risk Factors" and elsewhere in this report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Overview
Research Solutions was incorporated in theState of Nevada onNovember 2, 2006 , and is a publicly traded holding company with two wholly owned subsidiaries atJune 30, 2021 :Reprints Desk, Inc. , aDelaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the laws ofMexico . We provide two service offerings to our customers: a cloud-based software-as-a-service ("SaaS") research platform ("Platforms") typically sold via annual auto-renewing license agreements and the sale of published scientific, technical, and medical ("STM") content sold as individual articles ("Transactions") either stand alone or via the Platform. When customers utilize the Platform to purchase Transactions it is packaged as a single solution that enables life science and other research intensive organizations to accelerate their research and development activities with faster, access and management of STM articles used throughout the intellectual property development lifecycle. The Platform typically delivers a ROI to the customer via more effectively managing Transaction costs and saving researchers time during the research process.
Platforms
Our cloud-based SaaS research Platform consists of proprietary software and
Internet-based interfaces sold to customers for an annual subscription fee.
Legacy functionality allows customers to initiate orders, route orders for the
lowest cost acquisition, manage transactions, obtain spend and usage reporting,
automate authentication, and connect seamlessly to in-house and third-party
software systems. Customers can also enhance the information resources they
already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of
interactive app-like components. An alternative to manual data filtering,
identification and extraction, the apps are designed to gather, augment, and
extract data across a variety of formats, including bibliographic citations,
tables of contents, RSS feeds, PDF files, XML feeds, and web content. We
continue to develop new apps in order to build an ecosystem of apps. Together,
these apps will provide researchers with an "all in one" toolkit, delivering
efficiencies in core research workflows and knowledge creation processes.
Our Platform is deployed as a single, multi-tenant system across our entire
customer base. Customers securely access the Platform through online web
interfaces and via web service APIs that enable customers to leverage Platform
features and functionality from within in-house and third-party software
systems. The Platform can also be configured to satisfy a customer's individual
preferences. We leverage our Platform's efficiencies in scalability, stability
and development costs to fuel rapid innovation and competitive advantage.
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Transactions
Our Platform provides our customers with a single source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM articles each year. STM content is sold to our customers on a transaction basis. Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities. These individuals are our primary users. Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour; in many cases under one minute. This service is generally known in the industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer's use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically deliver single articles to our customers often in a matter of minutes.
COVID-19
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted inthe United States , or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.
Revenue Recognition
We account for revenue in accordance with ASU 2014-09, Revenue from Contracts
with Customers (Topic 606), ("ASC 606"). The underlying principle of ASC 606 is
to recognize revenue to depict the transfer of goods or services to customers at
the amount expected to be collected. We adopted the guidance of ASC 606 onJuly 1, 2018 . 22 Table of Contents
Revenues are recognized when control of the promised goods or services are
transferred to a customer, in an amount that reflects the consideration that we
expect to receive in exchange for those goods or services. We derive our
revenues from two sources: annual licenses that allow customers to access and
utilize certain premium features of our cloud-based SaaS research intelligence
platform ("Platforms") and the transactional sale of STM content managed,
sourced and delivered through the Platform ("Transactions").
[[Image Removed: Graphic]]
We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
? identify the contract with a customer;
? identify the performance obligations in the contract;
? determine the transaction price;
? allocate the transaction price to performance obligations in the contract; and
? recognize revenue as the performance obligation is satisfied.
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.
Stock-Based Compensation
We periodically issue stock options, warrants and restricted stock to employees
and non-employees for services, in capital raising transactions, and for
financing costs. We account for share-based payments under the guidance as set
forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards
Codification, which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees, officers,
directors, and consultants, including employee stock options, based on estimated
fair values. We estimate the fair value of stock option and warrant awards to
employees and directors on the date of grant using an option-pricing model, and
the value of the portion of the award that is ultimately expected to vest is
recognized as expense over the required service period in our Statements of
Operations. We estimate the fair value of restricted stock awards to employees
and directors
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using the market price of our common stock on the date of grant, and the value
of the portion of the award that is ultimately expected to vest is recognized as
expense over the required service period in our Statements of Operations.
Under ASC 718, Repurchase or Cancellation of equity awards, the amount of cash
or other assets transferred (or liabilities incurred) to repurchase an equity
award shall be charged to equity, to the extent that the amount paid does not
exceed the fair value of the equity instruments repurchased at the repurchase
date. Any excess of the repurchase price over the fair value of the instruments
repurchased shall be recognized as additional compensation cost.
Allowance for doubtful accounts
We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we estimate and record a specific reserve for bad debts, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding. We established an allowance for doubtful accounts of$51,495 and$88,485 as ofJune 30, 2021 and 2020, respectively.
Foreign Currency
The accompanying consolidated financial statements are presented inUnited States dollars, the functional currency of our company. Capital accounts of foreign subsidiaries are translated into US dollars from foreign currencies at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America are in Mexican Pesos. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
The following table summarizes the exchange rates used:
Year Ended
June 30,
2021 2020
Period end Euro : US Dollar exchange rate 1.19 1.12
Average period Euro : US Dollar exchange rate 1.19 1.11
Period end Mexican Peso : US Dollar exchange rate 0.05 0.04 Average period Mexican Peso : US Dollar exchange rate 0.05 0.05
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Quarterly Information (Unaudited)
The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2021 and 2020:
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2021 2021 2020 2020 2020 2020 2019 2019
Revenue:
Platforms $ 1,429,160 $ 1,344,183 $ 1,220,535 $ 1,141,688 $ 1,066,630 $ 1,017,789 $ 949,825 $ 856,445
Transactions 6,788,494 6,996,349 6,229,200 6,606,737 6,819,150 7,029,617 6,580,613 6,738,668
Total revenue 8,217,654 8,340,532 7,449,735 7,748,425 7,885,780 8,047,406 7,530,438 7,595,113
Cost of revenue:
Platforms 257,320 233,696 217,003 203,952 153,241 177,919 162,508 150,470
Transactions 5,218,118 5,404,196 4,841,150 5,094,897 5,224,006 5,330,473 5,094,130 5,128,108
Total cost of revenue 5,475,438 5,637,892 5,058,153 5,298,849 5,377,247 5,508,392 5,256,638 5,278,578
Gross profit:
Platforms 1,171,840 1,110,487 1,003,532 937,736 913,389 839,870 787,317 705,975
Transactions 1,570,376 1,592,153 1,388,050 1,511,840 1,595,144 1,699,144 1,486,483 1,610,560
Total gross profit 2,742,216 2,702,640 2,391,582 2,449,576 2,508,533 2,539,014 2,273,800 2,316,535
Operating expenses:
Sales and marketing 521,220 566,713 487,571 498,374 692,096 626,956 638,837 550,349
Technology and product dev. 732,371 664,195 624,747 622,961 537,830 536,238 548,719 499,191
General and administrative 1,354,244 1,233,603 1,118,750 1,161,061 1,132,483 1,230,580 1,270,375 1,231,345
Depreciation and amortization 2,694 2,066 3,039 3,723 3,746 5,510 6,840 7,558
Stock-based comp. expense 221,589 179,345 435,949 170,791 143,054 142,237 523,632 142,672
Foreign currency transaction
loss (gain) (890) 6,648 (17,469) (24,249) 4,214 8,648 (5,456) 12,123
Total operating expenses 2,831,228 2,652,570 2,652,587 2,432,661 2,513,423 2,550,169 2,982,947 2,443,238
Other income (expenses and
income taxes) 136 (322) 399 (2,270) 4,331 23,101 25,721 19,055
Income (loss) from continuing
operations (88,876) 49,748 (260,606) 14,645 (559) 11,946 (683,426) (107,648)
Gain on sale of discontinued operations - - - - - - 91,254 26,191 Net income (loss) (88,876) 49,748 (260,606) 14,645 (559) 11,946 (592,172) (81,457) Basic income (loss) per common share: Income (loss) per share from continuing operations $ - $ -$ (0.01) $ - $ - $ -$ (0.03) $ - Income per share from discontinued operations $ - $ - $ - $ - $ - $ - $ - $ -
Net income (loss) per share $ - $ -
-
Basic weighted average common shares outstanding 26,145,794 26,027,665 25,988,117 25,898,900 25,815,163 24,960,394 24,185,966 24,095,266 Diluted income (loss) per common share: Income (loss) per share from continuing operations $ - $ -$ (0.01) $ - $ - $ -$ (0.03) $ - Income per share from discontinued operations $ - $ - $ - $ - $ - $ - $ - $ -
Net income (loss) per share $ - $ -
-
Diluted weighted average common
shares outstanding 26,145,794 26,565,892 25,988,117 26,511,180 25,815,163 25,717,403 24,185,966 24,095,266
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Comparison of the Years Ended
Results of Operations
Year Ended June 30,
2021 2020 $ Change % Change
Revenue:
Platforms $ 5,135,565 $ 3,890,689 $ 1,244,876 32.0 %
Transactions 26,620,780 27,168,048 (547,268) (2.0) %
Total revenue 31,756,345 31,058,737 697,608 2.2 %
Cost of revenue:
Platforms 911,970 644,138 267,832 41.6 %
Transactions 20,558,361 20,776,717 (218,356) (1.1) %
Total cost of revenue 21,470,331 21,420,855 49,476 0.2 %
Gross profit:
Platforms 4,223,595 3,246,551 977,044 30.1 %
Transactions 6,062,419 6,391,331 (328,912) (5.1) %
Total gross profit 10,286,014 9,637,882 648,132 6.7 %
Operating expenses:
Sales and marketing 2,073,878 2,508,238 (434,360) (17.3) %Technology and product development 2,644,274 2,121,978
522,296 24.6 % General and administrative 4,867,659 4,864,783 2,876 0.1 % Depreciation and amortization 11,522 23,654 (12,132) (51.3) %
Stock-based compensation expense 1,007,673 951,595 56,078 5.9 % Foreign currency transaction loss (gain) (35,960) 19,529
(55,489) (284.1) % Total operating expenses 10,569,046 10,489,777 79,269 0.8 % Loss from operations (283,032) (851,895) 568,863 66.8 % Other income 1,147 80,044 (78,897) (98.6) % Loss from operations before provision for income taxes (281,885) (771,851) 489,966 63.5 % Provision for income taxes (3,204) (7,836) 4,632 59.1 %
Loss from continuing operations (285,089) (779,687)
494,598 63.4 %
Gain from sale of discontinued operations - 117,445 (117,445) (100.0) % Net loss$ (285,089) $ (662,242) $ 377,153 57.0 % Revenue Years Ended June 30, 2021 2020 $ Change % Change Revenue: Platforms$ 5,135,565 $ 3,890,689 $ 1,244,876 32.0 % Transactions 26,620,780 27,168,048 (547,268) (2.0) % Total revenue$ 31,756,345 $ 31,058,737 $ 697,608 2.2 % 26 Table of Contents
Total revenue increased
Category Impact Key Drivers Platforms ?$ 1,244,876 Increased due to additional deployments to new and existing customers, and expansion from existing customers. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue. Transactions ?$ 547,268 Decreased primarily due to lower order volume. Cost of Revenue Years Ended June 30, 2021 2020 $ Change % Change Cost of Revenue: Platforms$ 911,970 $ 644,138 $ 267,832 41.6 % Transactions 20,558,361 20,776,717 (218,356) (1.1) % Total cost of revenue$ 21,470,331 $ 21,420,855 $ 49,476 0.2 % Years Ended June 30, 2021 2020 % Change * As a percentage of revenue: Platforms 17.8 % 16.6 % 1.2 % Transactions 77.2 % 76.5 % 0.7 % Total 67.6 % 69.0 % (1.4) %
* The difference between current and prior period cost of revenue as a percentage
of revenue
Total cost of revenue as a percentage of revenue decreased 1.4%, from 69.0% for
the previous year to 67.6%, for the year ended
Impact as percentage
Category of revenue Key Drivers
Platforms ? 1.2 % Increased primarily due to proportionally higher
personnel costs.
Transactions ? 0.7 % Increased primarily due to proportionally higher
copyright and personnel costs.
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Gross Profit
Years Ended June 30,
2021 2020 $ Change % Change
Gross Profit:
Platforms $ 4,223,595 $ 3,246,551 $ 977,044 30.1 %
Transactions 6,062,419 6,391,331 (328,912) (5.1) %
Total gross profit $ 10,286,014 $ 9,637,882 $ 648,132 6.7 %
Years Ended June 30,
2021 2020 % Change*
As a percentage of revenue:
Platforms 82.2 % 83.4 % (1.2) %
Transactions 22.8 % 23.5 % (0.7) %
Total 32.4 % 31.0 % 1.4 %
* The difference between current and prior period gross profit as a percentage of
revenue
Operating Expenses
Years Ended June 30,
2021 2020 $ Change % Change
Operating Expenses:
Sales and marketing $ 2,073,878 $ 2,508,238 $ (434,360) (17.3) %Technology and product development 2,644,274 2,121,978
522,296 24.6 %
General and administrative 4,867,659 4,864,783 2,876 0.1 %
Depreciation and amortization 11,522 23,654 (12,132) (51.3) %Stock-based compensation expense 1,007,673 951,595 56,078 5.9 % Foreign currency transaction loss (gain) (35,960) 19,529 (55,489) (284.1) % Total operating expenses$ 10,569,046 $ 10,489,777 $ 79,269 0.8 % Category Impact Key Drivers Sales and marketing ?$ 434,360 Decreased primarily due to lower advertising media spend and consulting expenses partially offset by greater personnel costs. Technology and ?$ 522,296 Increased due to greater consulting product development expenses and personnel costs.
Provision for Income Taxes
During the years ended
Net Income (Loss)
Year Ended June 30,
2021 2020 $ Change % Change
Net Income (Loss):Loss from continuing operations$ (285,089) $ (779,687) $ 494,598 63.4 % Income from discontinued operations - 117,445
(117,445) (100.0) % Total net loss$ (285,089) $ (662,242) $ 377,153 57.0 % 28 Table of Contents
Loss from continuing operations decreased
Liquidity and Capital Resources
Year Ended June 30,
2021 2020
Consolidated Statements of Cash Flow Data:
Net cash provided by operating activities $ 1,868,406 $ 2,418,465
Net cash used in investing activities (19,854)
-
Net cash provided by (used in) financing activities (159,974) 1,553,399
Effect of exchange rate changes 4,203
(13,398)
Net increase in cash and cash equivalents 1,692,781
3,958,466
Cash and cash equivalents, beginning of period 9,311,556
5,353,090
Cash and cash equivalents, end of period$ 11,004,337 $ 9,311,556 Liquidity As ofJune 30, 2021 , we had cash and cash equivalents of$11,004,337 , compared to$9,311,556 as ofJune 30, 2020 , an increase of$1,692,781 . This increase was primarily due to cash provided by operating activities.
Operating Activities
Net cash provided by operating activities was$1,868,406 for the year endedJune 30, 2021 and resulted primarily from an increase in deferred revenue of$1,279,844 and an increase in accounts payable and accrued expenses of$337,343 , partially offset by an increase in accounts receivable of$268,193 .
Net cash provided by operating activities was
Investing Activities
Net cash used in investing activities was
No cash was used in or provided by investing activities for the year ended
Financing Activities
Net cash used in financing activities was$159,974 for the year endedJune 30, 2021 and resulted from the repurchase of stock options and warrants of$308,313 and the repurchase of common stock of$178,012 , partially offset by the proceeds from the exercise of warrants of$237,501 and the proceeds from the exercise of stock options of$88,850 .
Net cash provided by financing activities was
We entered into a Loan and Security Agreement withSilicon Valley Bank ("SVB") onJuly 23, 2010 , which, as amended, provides for a revolving line of credit for the lesser of$2,500,000 , or 80% of eligible accounts receivable. The line of credit matures onFebruary 14, 2022 , and is subject to certain financial and performance covenants with which we were in compliance as ofJune 30, 2021 . Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of$1,500,000 , plus 50% of net income for the fiscal quarter ended from and after 29 Table of Contents
There were no outstanding borrowings under the line as of
Non-GAAP Measure - Adjusted EBITDA
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations. Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for
the year ended
Years Ended June 30,
2021 2020 $ Change
Net loss $ (285,089) $ (662,242) $ 377,153
Add (deduct):
Other (income) expense (1,147) (80,044) 78,897
Foreign currency transaction loss (gain) (35,960) 19,529 (55,489)
Provision for income taxes 3,204 7,836 (4,632)
Depreciation and amortization 11,522 23,654 (12,132)
Stock-based compensation 1,007,673 951,595 56,078Gain on sale of discontinued operations - (117,445)
117,445 Adjusted EBITDA$ 700,203 $ 142,883 $ 557,320 We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Adjusted EBITDA has limitations as an analytical tool, which includes, among others, the following:
? Adjusted EBITDA does not reflect our cash expenditures, or future requirements,
for capital expenditures or contractual commitments;
? Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
? Adjusted EBITDA does not reflect interest expense, or the cash requirements
necessary to service interest or principal payments, on our debts; and
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although depreciation and amortization are non-cash charges, the assets being
? depreciated and amortized will often have to be replaced in the future, and
Adjusted EBITDA does not reflect any cash requirements for such replacements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 2 to our Consolidated Financial Statements appearing elsewhere in this report.
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